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Journal: International Journal of Management (IJM) (Vol.8, No. 2)

Publication Date:

Authors : ;

Page : 237-245

Keywords : Cost Allocation; Cost Effectiveness analysis; Cost Benefit Analysis; Theoretical view of Cost Effectiveness Analysis and cost Benefit Analysis.;

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Most often cost-effectiveness and cost-benefit studies are conducted at a level that involves more than just a local program (such as an individual State Strengthening project). Sometimes they also involve following up over a long period of time, to look at the long-term impact of interventions. They are often used by policy analysts and legislators to make broad policy decisions, so they might look at a large federal program, or compare several smaller pilot programs that take different approaches to solving the same social problem. People often use the terms interchangeably, but there are important differences between them. Cost - Effectiveness analysis assumes that a certain benefit or outcome is desired, and that there are several alternative ways to achieve it. The basic question asked is, "Which of these alternatives is the cheapest or most efficient way to get this benefit?" By definition, cost-effectiveness analysis is comparative, while cost-benefit analysis usually considers only one program at a time. Another important difference is that while cost-benefit analysis always compares the monetary costs and benefits of a program, cost-effectiveness studies often compare programs on the basis of some other common scale for measuring outcomes (eg., number of students who graduate from high school, infant mortality rate, test scores that meet a certain level, reports of child abuse). The Cost-Benefit Analysis denotes a methodology for a project evaluation and also a fundamental concept on economic matters. In this respect, the present article reviews some plain concepts which, if misjudged, may lead to assign an economic meaning to usual results having a strictly financial scope. Lying on this premise, the conclusion focuses on the needing for broader categories to evaluate the economic cost-benefit relationships of an investment project. The analysis of the Benefits and Costs of a project aims to evaluate the economic rationality of a possible investment decision. Regarding this, a review on the meaning of that singular methodology known as the “cost-benefit analysis”, CBA, here is proposed based on the premise that it focuses on a narrow definition of the economic matter. The CBA provides an accurate conceptual ground to assess business decisions in a market economy, where the production initiatives are assumed at their entrepreneurs' risk. That foundation goes beyond the particular way in which the analysis is performed, pursuing to know whether it can be expected an investment will have a value higher than its cost. Would the latter situation hold, the difference between both amounts will be granted as an extraordinary retribution to the entrepreneurial initiative? On this subject, a simple model explains how that differential of values comes into evidence when the financial principles of valuation get differentiated from those economic outcomes submitted to evaluation. Conversely, the extension of the above mentioned principle to the field of wider economic and environmental evaluations does not seem to have the same accurate meaning, because it pays attention only to a partial matter. What argued is the need to enlarge the categories and approach of the analysis when evaluating, for the society as a whole, the economic performance of a project and the economic consequences derived from environmental matters (and in any other case where to deal with the long run was required). In item I the CBA methodology will be described by means of a formal analysis, to settle an interpretation over its meaning and scope. Next, in item II, the answer previously obtained will be analyzed in terms of its adequacy for a private business under the context of a monetary economy. The third item will describe those restrictions

Last modified: 2017-05-22 14:53:27